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Consolidating Debt: Savings Strategies
Good money saving habits have much to do with knowing when to act – when to push, and when to pull, when to give and when to take, etc.
It is important to be able to respond to the ups and downs of interest rates to the best of your ability. When interest rates go up, you need to be able to push your expenses down. When interest rates go down, you can allow your debt to rise. Essentially, you should try to use money when it is the “cheapest”. One of the best ways to play this game might be to consolidate your debt and use the resulting savings as effectively as possible.
The asset in which most of us keep our money (or more accurately, our debt) is in a house. While people sometimes feel that they cannot afford to buy a home, understand that renting is not saving. While renting, you are incapable of securing more money. Below you will find valuable tips about using home equity and debt consolidation as your savings strategy.
Transferring Credit Card Balances
The average American family has an $8,000 credit card debt. Using debt consolidation to pay off credit cards is one of the most tempting, but misused, ways of tapping into home equity. On the other hand, getting a handle on credit is quite essential to maintaining effective savings.
A whopping 70% of people who use equity to pay off debt end up owing at least the same amount again within two years. In other words, it is easy to use your relief as a life vest instead of a swimming course. In the absence of a savings strategy, people waste the great potential of refinancing. If you are dealing only with credit cards and truthfully are unwilling or unable to change your spending habits, then there may be another way to manage your debt.
Look for zero-percent credit cards. Consumers have the potential to save hundreds of dollars by consolidating high-interest credit cards into to one zero-interest card. However, you must commit to saving. Always read the fine print. Most 0 % interest offers carry serious restrictions such as minimum balance transfers and time limits for the interest rate. Typically, most offers last six months. For many people, this can mean significant savings, but others try to move from one 0% card to another 0 % card at the end of the introductory period. While hopping from card to card may work, it also may put negative points on your credit.
Avoid Panicking
Recent increases in the cost of buying a home have led some to advise that it is better to rent than to buy a home. The problem with this kind of “front page news” advice, however, is that the front page always changes. Do not let individual expert opinions change your long-term savings plan. You can be sure that when interest rates drop, investors will rush right back into the market.
Some aspects of home ownership never change. Managing debt through consolidation always is a smart strategy to get (and to keep) a home. With credit so easily available to so many people, consolidating debt just makes sense. No matter what any given expert says at any given moment, the simple, unchanging truth is that consolidating debt should always be a strategic part of pushing and pulling money to and from the piggy bank.
Step 1: Admit that you have a problem
It's time to get real. Debt crises are usually caused by one behavior and one behavior only: You simply spend more money than you have. Make a list of your monthly bills, complete with the amount you're currently paying and each outstanding balance. Once you've finished your list and surveyed the damage, breathe a sigh of relief. If you're committed to minimizing your debt, you'll never owe this much money again.
Step 2: Analyze your spending habits
Where is your money going? Are you eating out too much? Using credit cards when you could have used cash for things that you don't really need? Once you've answered these questions, you're ready to make a change.
Step 3: Cut the fat
Cancel the gym membership that you never use, and stop paying for newspapers and magazines that you don't read. Those small expenses really add up. Sacrificing them is a painless way to begin your journey towards a debt-free lifestyle.
Step 4: Make a plan
Review your debt and determine how much you can afford to pay each month in order to lower your outstanding balances. Pay off the smallest amounts first in order to create a snowball effect. You'll experience a real sense of accomplishment when that first bill disappears. Then you can use that money towards the next item on your list.
Step 5: Damage control
Don't avoid your creditors. If they think that you aren't serious about paying off your debt, they may intensify their collection efforts until you surrender. Be proactive and contact them first to confirm your new payment plan. Don't commit to a higher amount, however, since any slip-ups may be viewed as a failure to honor your agreement. They'll never complain if you send a higher amount than what you've promised.
Step 6: Get the scissors
It's nearly impossible to reduce your debt if you keep using credit. Select the card with the lowest interest rate, and save that one for emergencies only. Cut up the rest, and don't carry your emergency card with you. The inconvenience will force you to determine whether a true "emergency" actually exists.
Debt reduction can be daunting, but the rewards are life-changing. Stick to the plan that you've made, and your mailbox and telephone will welcome you back with open arms.
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